The current movie exhibition model is under incredible stress. Although increasing ticket prices have often masked steadily declining movie attendance figures, there has been precious little experimentation to fundamentally address the issue of getting people back into the theater. As Doctor Phil would say, “how’s that current model working for ya?” The time has come to experiment and tinker to see what can be done to improve the initial window of movies, the window that drives all downstream revenues that finance the business. C'mon, guys, let's try some new things.
Several recent articles have suggested ways theater operators can increase movie attendance in North America . Putting aside this year, which has been down a disastrous 22% from last year, movie exhibitors have generally kept revenues up slightly from prior years by increasing ticket prices. But attendance, the number of tickets sold, has been declining for years. Aside from relying on Hollywood
Economists have noted that theater chains have priced their inventory (seats in theaters) in the same simplistic way for decades. Basically there is one price for adults, children, students and seniors, and often a discount for matinee showings. But airlines (also in the business of filling seats) and the hotel industry (filling hotel rooms) have used complex algorithms to minimize the number of empty seats or rooms and maximize revenues from paying customers. In addition, these industries have harnessed the power of the Internet to create an auction marketplace to induce customers to make a purchase. The Internet also allows the creation of massive and valuable databases, which can be mined to analyze consumer behavior and fine tune optimal pricing and timing strategies.
This article examines how variable pricing might be implemented by the movie industry. It concentrates on pricing movies differently according to performance. Poorly performing or less anticipated films could see lower admission prices to lure customers in (although a dog of a movie would probably play to an empty theater even if the ticket price were near zero). Highly anticipated or blockbuster movies might command higher prices (fans of Harry Potter or Batman or Twilight might pay more for the chance to see the movie first).
But this only scratches the surface. There are a number of different ways to implement variable pricing. A few ideas for pricing variables
- Day of week. Rather than having the same price structure across the week, price the highly attended Friday-Sunday period slightly higher and price the poorly attended Monday-Thursday period slightly lower. In this scenario, weekend admissions might rise to $9.50 (from the average $8 ticket price) and weekday admissions might decline to $6.50. See if this $3 spread induces more admissions during the weekday dead period, and see if admissions during the weekend stay relatively constant (when the audience is used to seeing films, when they are more available, and when there is a premium on seeing the film first). Or theater owners might find this a cannibalistic practice (the same number of movie goers simply shifts their “movie nights” despite increased competition from television and weekly activities). The point is, test it and see what happens.
- Time of year. A similar strategy to above. Movie attendance lags from January to April and August to October, while concentrating in the May through July and November to December periods. Price the “popular” periods higher and the less popular times of the year lower.
- Movie life cycle. Price movies in their first or second week higher than movies in their third week. Put a premium on seeing a film before anyone else, a premium that might be tolerable to frequent movie goers who are the opinion leaders and the generators of word of mouth. As a movie starts to wane, the lower price might jolt some life back into attendance, particularly if the movie has any buzz.
- Seating area. Price the very front of the theater slightly lower than seats with better views of the entire screen.
- Movie performance. As noted above in the article, lower the price on less popular movies and increase the price on the stronger titles.
- Some combination of all of the above. All of the above variables can be mixed and matched. No single variable will yield the optimal solution, which is most likely a smart (albeit complex) combination of different strategies. Again, the idea is a pick a few markets and experiment.
The Netfilx Model. A fascinating idea is posited in another article: build a relationship with customers by having them join a frequent movie program with utter simplicity, a monthly fee for unlimited movie attendance at a particular chain or set of theaters. The suggested price point ($10 per month) is ridiculously low (frequent movie goers, who drive the business, would continue to see many films a month and their revenue would plummet). But if the price point were something like $25 per month, it might induce occasional film goers to become frequent viewers and drive up concession revenue.
Realistically though, studios would balk at this plan. They see no profits from concessions and anything that might give the very frequent movie goer a “free ride” would probably cut into the revenue of high performing films. (Those are still made, right?). But the plan should not be taken so literally. The main benefit of the plan would be an establishment of a relationship, an online relationship, with the audience. To sign up, consumers would provide the usual zip code, email, and perhaps gender and age. This database would quickly become a marketing gold mine, filled with valuable data on consumer behavior. The pricing mechanisms discussed above could be tested, and high end marketing techniques could be implemented. With 75 million serious film goers (roughly one-quarter of the population), a chain could very easily scale up a database of many millions.
The author’s point is that the current system is not working well. And doing nothing in the face of competition from piracy, shorter theatrical windows, and home viewing in HD on a variety of platforms will only make the future more challenging.
What do you think? Feel free to comment on what you would do to change the movie exhibition business, or let us know if you think it “ain’t broke so don’t fix it”.
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